Tuesday, May 7, 2019

A new program the federal government has announced to subsidize first-time homebuyers isn’t likely to help the market but more likely to harm it.

And not only is it not going to help out the market, but it’s not going to help out new homeowners.

In its recently announced budget, the government is essentially putting the weight of turning around the market on the backs of people just entering the housing market.

Part of the problem with the plan is that we only know what’s happening on the front end. People buying their first home will be eligible for a 5% top up from the from the Canada Mortgage and Housing Corporation (CMHC) to the total cost of a home. That amount increases to 10% for new constructions. To qualify, a household must have a combined income of less than $120,000, and the CMHC will only pick up a maximum of $480,000.

In exchange for this, the housing corporation gets an equity share in your home.

While we know what the government will give new homebuyers, we don’t know what it’s going to cost them down the road. Believe it or not, there’s been no announcement on what interest rates will be offered on the loans, nor what the terms of repayment would be. Complete costing isn’t expected until at least the fall, likely after the federal election.

But the real problem at the heart of this is the measures won’t do anything to help the affordability of homes. It’s not going to decrease the price of housing, and it’s just going to put the burden of propping up the market on the backs of new entrants.

In RBC’s most recent housing affordability report, released in March, the bank said a softer housing market was making houses slightly more affordable, as their national affordability index dropped 0.7 percentage points to 51.9%. (The lower the score, the more affordable homes are.)

“The fourth-quarter relief barely made a dent in Vancouver and Toronto where affordability remains at crisis levels. Owning a home in both of these markets, as well as in Victoria and increasingly Montreal, is a huge stretch for ordinary buyers,” RBC said in a press release.

In Montreal, the bank’s score is 44.5%, and RBC said the situation is not critical just yet.

“Housing affordability is eroding gradually to levels that could potentially pinch buyers—though so far they haven’t shown any sign of balking,” they said.

But with this new CMHC policy, that gradual erosion is likely to turn critical when this new wave of homebuyers crashes into the market.

One of the potential risks with this scenario is called overhang. Essentially, because a new policy has been announced, but hasn’t come into force yet, many Canadians who are likely to qualify are going to decide to put off their purchases. For now, un-bought supply will build up. But as soon as this policy goes into effect, these first-time buyers are going to suck up huge swathes of the housing market, and prices are going to skyrocket.

The new federal program is designed to lower the monthly mortgage payments of new homeowners by what amounts to a few hundred dollars a month. That can make a huge difference in the budget of a young family, but to do this, the government is putting their hands in the pockets of new homeowners for an unspecified amount, while at the same time risking further unaffordability in the housing market.

They could have had the same effect—lowering monthly payments—by re-introducing 30-year amortizations. Instead, they’ve kept the limit for CMHC-insured mortgages set to 25 years.

The shorter amortizations coupled with the continuation of the strict stress-testing rules, covered extensively in recent North East Mortgages blog posts, puts pressure on people on the lower end of the market. The stress test makes sure you can’t just handle the rate you’re signing on for, but makes sure you can handle an additional 2 percentage on top of it.

The rules the government has passed in the last few years have made it more difficult for new buyers and established buyers alike. They’ve also made it hard for people to refinance their more toxic debt, putting them into situations far riskier than the relative rarity of mortgage default.

Adjusting those rules would have a wider effect and give more people the step up they need to enter the housing market.

If the government really wanted to help with the affordability of homes, they have plenty of better options. This narrow measure is going to end up causing more harm than good.

Friday, February 8, 2019

If you have a mortgage, chances are unless you win a lottery (cha-ching $$$) you’ll be doing a mortgage renewal when your current term has finished.

While most Canadians spend a lot of time, and expend a lot of effort, in shopping for an initial mortgage, the same is generally not the case when looking at mortgage renewals.

So what is a mortgage renewal?

Mortgages are amortized* over a set term* which can vary from 1-10 years.

About 6 months before the end of your term, your current lender will suddenly become your “Best Friend” showering you with attention and trying to entice you with early renewal offers… Please, please, please Mortgage borrower, sign here on the dotted line to renew… it’s sooo easy!!

You have 3 options

Sign and send back as is (don’t do it, really I mean it… don’t do it!!)

Check the market to make sure you are getting the best rate and renegotiate with your current lender

Talk to your friendly neighbourhood Dominion Lending Centres Mortgage Professional and together we can discuss the best options available for your situation.

Lenders know that 80% of people will sign their renewal forms, because it’s easy. Banks & Lenders are a business and as such they want to make the highest profits to keep their shareholders happy. As an educated consumer, you need to take the time to ensure you are being offered the best possible rate & terms you can get. Remember all those hours of research you did regarding lenders and mortgage rates when you were buying your first home?

Yes, signing the renewal document is easy, however, it’s in your best interest to take a more proactive approach. Money in the lenders pocket comes directly out of your pocket… so its time to get to work!

5 steps to save you money on your mortgage renewal

Receive the renewal offer from your current mortgage lender and examine immediately, which gives you enough time to make an informed decision.

Do your research via the internet and phone calls to find out about current rates.

Phone your current lender and negotiate!

If your lender will not offer you a better rate then it’s time to move your mortgage. YES, you will have to complete a mortgage application and gather documentation, just like you did for your original mortgage.

Take a look at your budget and see if you can increase the amount of your mortgage payments above the mandatory payments and save money by paying off your mortgage quicker.
Your mortgage is one of your biggest expenses. For this reason, it is imperative to find the best interest rates and mortgage terms you possibly can.

As you can tell there is lots to discuss about mortgage renewals.

To save money, call a DLC mortgage broker to help you shop your mortgage around at renewal time.

Wednesday, February 6, 2019

Policies are always changing, and when you port a mortgage, a FULL application must be approved and completely underwritten with full, credit, income, property and policy review.
It’s a mistake to believe that just because you already had a mortgage, you will easily get a new one. Policies and rates are changing rapidly and you need a strategy to stay informed. SO BEFORE you consider a move, understand the worst case scenario of what you qualify for without porting your mortgage so you avoid disappointment of falling into the 70% of people that don’t end up porting. Mortgages can be made simple, when you are empowered with relevant information relating to the current market and your life stage. Depending on those factors, you might be happy to get rid of your old mortgage and get in with the new! We have a mortgage for that, and can help. On average less than 3% of mortgages are portable.
Let me list a few of the reasons why
1. Dates– most lenders have a different policy on the dates that will allow to port the mortgage; it can be weeks or months. Your closing date will determine that.
2. Amortization– porting a mortgage means you port the same amortization, so if you are moving up the property ladder, that may mean your payments are significantly increased making it less affordable or meaning you can’t qualify with your income.
3. Amounts– some have a 10% variance limit up or down, where the penalty will trigger or it’s no longer a fit within the policy.
4. Change in credit– depending on the credit score and outside debts you have will determine if you still fit the credit profile your previous mortgage had.
5. Income– if there has been a change in your income type or amount this will also impact the options.
6. Property type– some lenders only lend on single-family homes, or a particular zoning, or don’t do private sales- even if they did when you originally got your mortgage with them.
7. Rate– maybe the change in rates either way of the product type you took doesn’t allow for a port due to one or a few of the combined factors. For example, going from insured to uninsured comes with different policies.
8. Product– maybe the product you had no longer exists for your particular profile.
9. Inspections – maybe the lender approved it initially but after your inspection just as you wanted a reduction in price, they decide they are no longer going to lend on it or decide it doesn’t fit the profile or they wont do it under that program ( instead you need a purchase plus improvements or a hold back they may or may not participate in and maybe want a different fix that you or a strata council agree on.)
10. Bridge – if you want to buy before you sell, all the above factors come into play. Maybe the original lender doesn’t allow the length of time you need, there cost to bridge is much higher, or maybe they don’t approve that portion of the loan, which puts you back at square one.

Purchasing a home is complex, with many moving parts and needs to be understood as such. When you have an experienced Dominion Lending Centres mortgage broker by your side while lots of things can come up, we can guide you through what is best for your family, which is why we encourage you to be educated, and empowered so you are ready for your next part of your ownership journey.

Tuesday, January 29, 2019

First Time Home Buyers

Your First Home. What a THRILLING thing that is to think about!! One of the best parts about my job is help individuals purchase their first home. We know that the process can seem daunting at first, but I have an in-depth understanding and knowledge of what steps are required to make the process go smoothly. Follow these and you will be turning the key into your new home before you know it.

1. Find a Fantastic Mortgage Broker - Amy Wilson
Finding a mortgage broker who can help with your pre-approval process can allow you to determine the price point of a home you can really afford. Finding a mortgage broker right off the bat can also give you an advantage over working with your bank:

Mortgage Brokers work for you, not the bank or lender

They have access to multiple lenders and are not limited to one single product

They are an expert in the field. They focus on mortgages and mortgages alone!

2. Get Comfortable With The Numbers
There are two numbers that all first-time homebuyers should keep in mind: 39 and 44. These two numbers can help you budget and determine what you can truly afford when looking to purchase a home. Why 39 and 44? Here’s why:

A maximum of 39% of your total income can go towards your housing costs. This will cover your mortgage payment, property tax payment and heating costs.

A maximum of 44% of your total income can go towards your housing costs and total debt payments. This will include ALL housing costs and all debt repayments (credit cards, car loans, student loans, etc.)

3. Know What Your Down Payment Needs to Be
You know the numbers, now let’s look at what you need to know about the down payment itself. First, if you have less than 20% down payment, your mortgage will be insured and have insurance premiums added to your mortgage. If you are considering putting the minimum down, that would be 5% if the property is worth $500,000 or less. A down payment of 10% is required for any amount over $500,000. Here’s a quick example of what this looks like:

Purchase Price of $600,000

5% of $500,000 $25,000

10% of $100,000 $10,000

Total Down Payment: $35,000

4. Take Advantage of The RRSP Home Buyers Plan
The Canadian government’s Home Buyers’ Plan (HBP) allows for first time home buyers to borrow up to $25,000 from you RRSP for a d own payment, tax-free! You are able to combine this with your partner if you are both first time home buyers you can both access the $25,000 from your RRSP for a combined total of $50,000. Certain qualifications do apply for you to use this plan.

5. Don’t Forget About the Closing Costs!
This is one so many people overlook! Closing costs are something that can add up quickly when you are purchasing a home. Here is an approximate breakdown of the funds you will need:

Legal Costs: $1000

Title Insurance: $200

Appraisal: $350

An additional few facts on property tax for you to consider:

This is an approximation of what your closing costs may be, but it is always good to budget for them beforehand.

6. Have your Documents Ready to Roll
Mortgages = paperwork! There are a number of documents that you will need to have to give to your mortgage broker. This will vary depending on your employment situation and where your down payment is coming from, but here is a general list you can follow:

Most Recent paystub

Letter of Employment

NOA’s (2 years)

T4’s (2 years)

Down payment verification—up to 3 months of bank statements

Contract of Purchase and Sale (Your realtor will provide this)

Property Disclosure Statement (Realtor will provide)

if you are self-employed you may also have to show:
o T1 Generals
o Articles of Incorporation
o Financial Statements

7. Start Working on Your Credit Score
Yes, your credit score does directly impact your ability to get a mortgage. Lender’s want to see that you can responsibly manage credit and debt repayment before loaning you a large sum of money to purchase a home. Your credit score will be a determining factor in the terms and rate associated with your mortgage.

Just what impacts your credit score? Good question! Here are a few things:

Ideally, you will be able to show a minimum of 2 active and current trade lines

The longer your trade line is, the better increase in your score!

Lenders also like to see a minimum of $2,000 limit on your credit cards.

Understanding and using this knowledge can help make your first home buying experience a great one! Once you have gone through the pre-approval process with a mortgage broker the fun part begins! Upon you receiving your preapproval, you can begin the house hunting. From there, you can put an offer on your dream home (yay!) Once your offer is accepted, we go through the mortgage process with you and then it’s moving day for you!

This is an exciting time for first time homebuyers—I enjoy getting to help my clients go from start to finish and help them get the keys to their first ever home. If you have questions or are looking to find out just how much you will qualify for you can contact Amy Wilson direct at 780-919-0475 or amy@yourmortgagegirl.ca.

Wednesday, January 23, 2019

Mortgage Questions answered: A few times a week, I like to post a question I have got from my current clients and post it here with an answer:Question: Do I need to get Pre-Approved for a mortgage?Short Answer: YES!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! I can't stress it enough, YES, YES, YES!I work with new clients every week and a large percentage are shopping for homes or have written an offer to purchase on a home and don't know what they are pre approved for.YIKES.... put on the brakes - the first steps to purchasing a home should always be a properpre approval from Amy Wilson, yourmortgagegirl!There are many different types of mortgages available that come with different rates and rate holds. Each mortgage product varies from the amount of money needed down to the qualifying debt to income ratios.Income comes in all varieties, casual, part time, full time hourly, full time salary, commission, commission plus hourly, retirement, self employment, contract, disability etc. Lenders qualify your income differently depending on how you earn your income. In a pre approval you will provide paperwork to your broker to determine how much income can be used to qualify for your home purchase.Down Payment has specific paperwork requirements tied to it, that can hold up an approval or funding, better to find out before you go home shopping!Many of my clients are getting declined to purchase a home they have all ready emotionally attached to because they didn't get the pre approval first - Pre approvals will eliminate disappointment!Some lenders will give you a predication of how much you qualify for based on a paystub and answering a few questions, I strongly recommend you don't use this method.Take the time to do a mortgage applicationwith Amy Wilson, yourmortgagegirl and provide paperwork so you can be confident when you go to buy a home.Time frame - you should get pre approved as soon as you are even thinking of buying a home - why?1. Confidence when you start shopping, you won't face disappointment of the unknown credit check.2. You have a set Pre Approval amount, so it helps you stay on track for a price range to shop in3. Correct Potential Credit Problems: If you credit issues that need to be fixed, we can address them prior to a looming deadline.4.You will have a strong understanding of all the costs to purchasing your home or moving your mortgage to a new lender5.If there were multiple offers, you will be ahead of the other offers as your pre approval is in place, no pressure deadlines.6. Once you make an offer on a home, you can get an approval quicker with no hassles or surprises, reducing stress!